March 30, 2020

Monday Morning Memo: The Coronavirus Could Lead to a Faster Digitalization of the Asset Management Industry

by Detlef Glow.

The whole world switched into crisis mode due to the rapid spread of the coronavirus across the globe, sparking a pandemic which closed many businesses and led to lockdowns in some countries. For the asset management industry, this means that most of the employees are now working in a virtual office environment, also known as a home office.

From my perspective, the experiences from these circumstances will lead to an even faster adoption of digital solutions within the asset management industry—a situation that was expected eventually. Generally, it is clear that the asset management industry is, at the moment, somewhat behind other industries when it comes to the digitalization of business processes and the digital customer experience.

The faster adoption of new technologies will enable the asset management industry to stay competitive in a world of shrinking revenues caused by falling income from management fees and higher regulatory burdens, which increase the cost for asset managers.

One question that might arise is whether asset managers will still need large offices in prime spaces after this crisis since a high number of employees will enjoy working from home instead of commuting two or three hours a day to get to their office (even as they may miss the social contact made in the office). In addition, the use of virtual working environments may not lead to decreased productivity, despite the contrary opinion of some managers. This means that companies may reduce their office space and enable more employees to work from home in the future, though there are still some functions that will need to be carried out in an office environment.

The same might be true for sales teams. As sales people tend to be out of the office for several days every week anyway, the question is why a company should rent an expensive space for them instead of having them working from home on the days they don’t see clients.

I am also pretty sure that the current crisis will lead to a faster development of digital offerings for investors since sales teams are not able to visit customers and prospects at the moment. This will lead to an increased demand for services via e-mail or other digital communication channels. In addition, the asset management industry may learn that they can communicate with customers and prospects very fast via social media.

With regard to the above, I am sure that some asset managers will come out of this crisis stronger than before, as some will be able to reduce their operating costs while increasing the productivity of their employees. This does also mean that the falling revenues from the decreased assets under management—caused by the current market turmoil—will not hit them too hard, while others may struggle from these market developments due to their high operational costs.

From my point of view, the current crisis might be an accelerator for these ongoing changes in the asset management industry.

The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.

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